Striking The Right Investments Is A Balancing Act

What is meant by rebalancing a portfolio? Rebalancing is fundamental to a long term investment strategy. When you invested initially, one would hope that it was done as per an investment risk questionnaire and with an appropriate asset allocation to match. As a matter of course, investment portfolios should be rebalanced at least annually. However, the more volatile the market, the more frequently the asset allocation should be rebalanced.

Rebalancing is necessary because different asset classes perform differently over the same time frame. It therefore follows that your percentage asset allocation will change with market movements. The implication is that if you don’t rebalance your assets, it will unintentionally alter your risk profile. Rebalancing is actually realising the profit or loss in each asset class and maintaining correct asset allocation as per your risk profile. Something else to think about is rebalancing currency exposure.

With the rand showing more volatility, a consequence could be that a percentage of offshore exposure may have increased. It could be worthwhile to realise currency gains.